Reference no: EM131406312
Assignment
Read Chapter 6 as well as the provided weblinked material, and follow the below instructions.
https://www.federalreserve.gov/faqs/money_12856.htm
https://www.bankrate.com/finance/mortgages/fed-affects-banks-rates-prices-and-jobs-1.aspx
https://www.lendingtree.com/mortgage/affect-of-fed-on-interest-rates-article
1) Define the following. (Short answers okay)
a. Opportunity Cost
b. Risk Free Rate
c. Inflation Premium
d. Default Risk Premium
2) Write an essay of no more than 1 page, that summarizes the role of the Federal Reserve Bank in setting interest rates.
3) Work the following Problems.
a. Suppose 1-year T-bills currently yield 7.00% and the future inflation rate is expected to be constant at 3.20% peryear. What is the real risk-free rate of return, r*? Disregard any cross-product terms, i.e., if averaging is required,use the arithmetic average.
b. Suppose the real risk-free rate is 3.50% and the future rate of inflation is expected to be constant at 2.20%. Whatrate of return would you expect on a 1-year Treasury security, assuming the pure expectations theory is valid?Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average.
c. Suppose 10-year T-bonds have a yield of 5.30% and 10-year corporate bonds yield 6.75%. Also, corporate bondshave a 0.25% liquidity premium versus a zero liquidity premium for T-bonds, and the maturity risk premium on bothTreasury and corporate 10-year bonds is 1.15%. What is the default risk premium on corporate bonds?
d. Suppose the real risk-free rate is 3.00%, the average expected future inflation rate is 2.25%, and a maturity riskpremium of 0.10% per year to maturity applies, i.e., MRP = 0.10%(t), where t is the number of years to maturity.What rate of return would you expect on a 1-year Treasury security, assuming the pure expectations theory is NOTvalid? Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average.
|
What are some ways you can balance your own religious
: What are some ways you can balance your own religious, political, marriage, or economic views with those views of employees and coworkers that may be different from yours? If you were a leader of an organization does your strategy differ?
|
|
Marketing effectiveness rating instrument
: How does the HSO/HS that you evaluated score on the marketing effectiveness rating instrument? If it was low, explain why. What marketing strategies do you recommend to the HSO to improve their marketing effectiveness rating?
|
|
How much of the silicon substrate is consumed
: During a processing sequence, three silicon-dioxide layers are grown by oxidation to 2500 A, 4000 A, and 1500 A, respectively. How much of the silicon substrate is consumed?
|
|
What are specific people risks associated with a bank
: You will further research the bank you chose as the subject of your project. Write the next section of your risk management plan in which you discuss the key people, financial, and operation risks associated with your bank. Be sure to include ban..
|
|
What is the real risk-free rate of return
: FIN3000-005: Suppose 1-year T-bills currently yield 7.00% and the future inflation rate is expected to be constant at 3.20% peryear. What is the real risk-free rate of return, r*?
|
|
Property manager interview instructions
: You are to interview a property manager and submit a written account of the interview. This interview can be in person, telephone or via e-mail. You will prepare a list of questions to discuss with the Property Manager during the first 4 weeks of ..
|
|
Digital electronic circuits using logic devices
: Compare different digital electronic device families and Design and construct combinational and sequential digital electronic circuits using logic devices
|
|
Can any relationship be drawn between chip size and yield
: A certain wafer manufacturer produces two equalized wafers, one containing 500 chips and the other containing 200. After testing, it is observed that 50 chips on each wafer are defective. What are the yields of these two wafers? Can any relationsh..
|
|
Private signals and group affiliations
: MBA programs provide neither general nor specific human capital. Nevertheless, MBA students who graduated from top business schools might have better jobs than students from other schools at the beginning of their careers. However, this difference,..
|